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Coca-Cola Enterprises Inc (NYSE:CCE)

Q2 2013 Earnings Call

July 25, 2013 10:00 am ET

Executives

Thor Erickson

John Franklin Brock - Chairman, Chief Executive Officer, Member of Executive Committee and Member of Corporate Responsibility & Sustainability Committee

William W. Douglas - Chief Financial Officer and Executive Vice President

Hubert Patricot - Executive Vice President and President of the European Group

Analysts

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Caroline S. Levy - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Operator

Good day, and welcome to the Coca-Cola Enterprises' Second Quarter 2013 Conference Call. At the request of Coca-Cola Enterprises, this conference call is being recorded for instant replay purposes. At this time, I'd like to turn the conference over to Mr. Thor Erickson, Vice President of Investor Relations. Please go ahead, sir.

Thor Erickson

Thank you, and good morning, everybody. We appreciate you joining us today to discuss our second quarter 2013 results, along with our outlook for full year 2013.

Before we begin, I would like to remind you of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook for future periods. These comments should be considered in conjunction with the cautionary language contained in this morning’s release, as well as the detailed cautionary statements found in our most recent annual report on Form 10-K and subsequent SEC filings. A copy of this information is available on our website at www.cokecce.com.

This morning's prepared remarks will be made by John Brock, our CEO; and Bill Douglas, our CFO. Hubert Patricot, President of our European Group, is also with us on this call this morning.

Following prepared remarks, we will open the call for your questions. In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question, and we will take follow-up questions as time permits.

Now, I'll turn the call over to John Brock.

John Franklin Brock

Thank you, Thor, and we thank each of you for joining us. We are in our London office today following our board meeting in Oslo, Norway earlier this week. As you will recall, in early June, we noted the effects of challenging operating conditions, including macroeconomic weakness, poor weather, continuing customer challenges from the impact of the French excise tax increase last year and the competitive environment in Great Britain.

Our full year planning was based on our belief that as we move through the year, most of these factors would begin to moderate and we would see business conditions improve. Though macroeconomic weakness continues to impact consumers, customers and our own results, we have proven our ability to manage through these conditions in recent years. However, we see weather as the largest contributor to volatility in our results. Cool, rainy conditions clearly impact overall consumer behavior and the retail sector, and this type of weather persisted throughout the second quarter. The impact of weather-related volatility is further supported by the upside that we've seen over the past few weeks. Warmer, more favorable summer weather combined with our activation plans and marketplace execution has enabled our business to return to strong growth in the month of July.

So we are off to a good start for the third quarter. Based on our challenging first half results and our outlook to returning to growth in the second half, we have modestly revised our full year guidance for net sales and operating income.

Now before I move on to our results, I want to stress 2 points. First, our commitment to delivering growth in shareowner value, our most important priority, remains as strong as ever. We will utilize all available levers, including the strength of our balance sheet, to continue to return cash to shareowners and drive value.

Second, we will make certain that our business is operating with the focus on effectiveness and efficiency, as well as with outstanding customer service. This will enable us to be fully prepared to realize the benefits of the long-term growth prospects that we continue to see ahead of us.

Now let's look at our most recent results. Second quarter earnings per share totaled $0.77. Net sales declined 3% and operating income was down 5%, both on a comparable and currency-neutral basis. Our total volume for the quarter declined 2.5%, reflecting the impact of the issues we've just discussed. On a territory basis, volume in Great Britain declined 1.5% and Continental European volume declined 2.5%.

Despite the overall challenges to our category, there were bright spots that reflect the enduring consumer preference for our brands and the balance of our portfolio. For example, our Share-a-Coke program has achieved extremely high levels of engagement with consumers, generating more than 100 million social media impressions. In sparkling drinks, we continued to build brand loyalty for Coca-Cola Zero with growth of 13%. We also have seen a positive consumer response to new Coca-Cola-trademarked flavor extensions, including Vanilla Coke and Coca-Cola Zero Cherry. In addition, our portfolio of energy brands grew 3%, including 15% growth for Monster.

In Stills, Capri-Sun achieved high-single digit growth. I also want to point out our success in the important Hard Discount channel. We are achieving excellent volume growth in this channel and doing so profitably in a way that meets the needs of key customers. These successes combined with our ongoing commitment to outstanding execution, have enabled us to achieve meaningful share growth across our territories.

Looking further at our second quarter results, cost of sales per case increased 2%. Net pricing per case declined 0.5% as a result of a more modest pricing approach, timing and negative mix, primarily in Great Britain. As we've discussed with you previously, this reflects the impact of a short-term strategy adopted in response to certain competitive marketplace factors. This does not indicate a change in our long-term pricing goals and, in fact, we expect to realize increases in net pricing per case over the remainder of the year.

Turning to our full year outlook. We now expect earnings per share in a range of $2.45 to $2.50, including a negative currency impact of less than 1% based on recent rates. We now expect full year net sales to grow in a low-single digit range versus prior year. Operating income is now expected to grow in a low- to mid-single digit range. Guidance for net sales and operating income is comparable in currency-neutral.

In a few minutes, Bill will provide more details on this outlook, the sequencing of our results and additional details on our share repurchase efforts.

Before I want to -- before I close, I want to note that we recently published our 2012/2013 Corporate Responsibility & Sustainability Report. This report details significant achievements in carbon reduction, water usage and packaging recycling, including reducing our water use ratio to its lowest level ever and cutting operational carbon footprint by 15% in 1 year. We are proud of these accomplishments on several levels, but most importantly, for the teamwork that these achievements represent. This kind of operating success requires support and hard work from each employee, and we are extremely proud of their contributions. We continue to seek to lead change for a more sustainable tomorrow, working in partnership with each of our stakeholders.

Now let me share some closing thoughts. Although we continue to face challenges, we are focused on managing each element of our business to generate consistent, long-term growth and in turn, to continue to grow value for our shareowners. Despite the persistent challenges of the past 18 months, we are building on a history of growth in Europe with excellent year-over-year results for the prior 6 consecutive years.

We remain confident in our ability to grow this business over the long term. And with normal weather conditions, we can continue to navigate through this challenging business environment.

We have a portfolio of popular brands that are highly valued by both consumers and customers, coupled with a very effective system of production and distribution. Utilizing the assets of our company to create long-term value for shareowners remains our most important objective, and we are firmly committed to taking the steps necessary to accomplish it. In fact, we believe our current share repurchase efforts, coupled with our ongoing plans to maximize the value of our brands and to operate our business with high levels of effectiveness and customer service, will enable us to reach this goal.

Now I'll turn the call over to Bill for more detail on our financial results, as well as our full year outlook.

William W. Douglas

Thanks, John, and we appreciate everyone for taking the time to be with us this morning. We recognize that it's a busy day in the CPG world.

As we look at the results for the second quarter, our diluted earnings per share were $0.77 on a comparable basis, or $0.66 on a reported basis. Net sales totaled $2.2 billion, down 2.5% on a reported basis, or 3% on a currency-neutral basis. Operating income totaled $272 million on a reported basis, or $314 million on a comparable basis.

Comparable operating income declined 4%, or 5% on a currency-neutral basis. Volume for the second quarter, as John mentioned, was down 2.5%. Net pricing per case declined 0.5%, but remember, this is cycling a 4% increase in the second quarter of 2012. Cost of sales per case increased 2% for the quarter.

Operating expenses declined 8% due to timing, volume declines and the effectiveness of our ongoing expense control initiatives. All the figures just mentioned are comparable and currency-neutral.

Our results are below the expectations that we had at the beginning of the year. Our first half performance reflects several factors, including below average weather and macroeconomic weakness.

As we have transitioned into the third quarter, a combination of good July weather and the benefits of our operating and promotional plans have driven a return to growth in our business. While we cannot control weather, we can and will make certain we are performing at a very high level with business strategies that maximize our operating and marketplace effectiveness.

For example, our Business Transformation Program includes a restructuring of our commercial business that realigns our field sales organization into a more effective and efficient customer service model and enhances the structure of our finance function.

The restructuring of our business in Norway has also been very successful. As John mentioned, we just concluded a board meeting in Oslo, and we were able to see first hand the benefits of moving to third-party and customer warehouse delivery, as well as transitioning from refillable to new recyclable, non-refillable packaging.

Also as a result of this, we're now able to increase our packaging diversity and have recently added a 375ml PET bottle into the Norwegian market. These changes better align customer and consumer needs and preferences while expanding our opportunities for growth. Further, in all of our territories, we are monitoring and adjusting our promotional activity and our pricing approach.

Looking ahead, we expect to realize additional pricing and mix benefits, particularly in our GB market. Also, we continue to manage our operating expenses very closely. Notably, an important example is our successful ownership cost management expense program. These are examples of our commitment to manage each of the levers of our business to reach our ultimate objective: Delivering shareowner value.

Another way to drive this value is through our share repurchase program, which enable us to utilize our free cash flow and our solid balance sheet to continue returning cash to shareowners. Year-to-date, in the second quarter, we have repurchased approximately $600 million of our stock.

Now, as we look toward the remainder of the year, our guidance calls for comparable earnings per diluted share in a range of $2.45 to $2.50, with a negative currency translation impact of less than 1% based on recent rates.

Full year net sales are now expected to grow in a low-single digit range versus prior year. Full year operating income is now expected to grow in a low- to mid-single digits range. Guidance for net sales and operating income is comparable and currency-neutral.

Let me add some color on share repurchase and our levers targets. We now expect to repurchase at least 1 billion of our shares by the end of the year. As for leverage, we continue to see ourselves as modestly underleverage and continue to expect to remain within our long-term targets of 2.5 to 3x net debt-to-EBITDA at year end 2013.

Capital expenditures are now expected to be approximately $325 million. This reduced target, coupled with the continued focus on delivering free cash flow, enables us to maintain our full year free cash flow outlook in a range of $450 million to $500 million. This is including a year-over-year increase in cash restructuring expense of approximately $125 million.

We continue to expect our weighted average cost of debt to be approximately 3%, and our effective tax rate remains in a range of 26% to 28% for the full year.

Now a couple of points on sequencing. As previously discussed, growth is expected to be back-half weighted. Second half net sales and operating income growth on a comparable and currency-neutral basis are expected to be in line with our long-term objectives. We expect year-over-year comparable EPS growth to be greater in the fourth quarter than in the third, given our current operating outlook, prior year hurdles, currency rates, and importantly, one additional selling day in the fourth quarter of 2013.

In closing, let me note that while we have experienced a very difficult operating environment in the first half of the year, we continue to focus on driving shareowner value, our most important objective, by successfully managing every lever of our business.

We expect to accomplish this objective through the effort of our highly talented team that remains focused on serving customers and winning in the marketplace every day. We also continue to rely on our great brands across our product portfolio. Both of these assets, combined with the history of growth in Europe, support our objective of driving consistent, long-term profitable growth and increasing shareowner value.

Again, thanks for joining us. And now John, Hubert and I are happy to open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Steve Powers of Bernstein.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

So first, a question on the pricing. It was -- it came in weak in the quarter, down 0.5%, at least relative to our expectations. And you attributed that to, really the U.K. But you also mentioned that it should improve from here. I'm wondering if you can provide more of an update on the current competitive dynamics in the U.K., and whether your implied improvement in pricing, specifically in the U.K., is based on actual improvement so far seen? Or is it still more of a forecast with respect to competitive pressure easing?

John Franklin Brock

Okay. Thanks, Steve. Let me ask Hubert to address that question.

Hubert Patricot

Yes, Steve. In GB and [indiscernible] territories, our focus remain on long-term profitable growth. We see the category as growing and expandable in value for our customers, consumers and us. In GB in particular, the category will experience periods of increased promotional activity. We saw that last year. In fact, last year, we saw the CCE price premiums versus our primary cola competitor increase. And so this has fluctuated [ph] in 2013. Promotional activity has narrowed the gaps with June year-to-date, near historic levels here in GB. And we are seeing this, in fact, on share totals as well, where CCE has grown both volume and value share across Europe and in GB, in both NARTD and in the cola segment. For the full year, as we previously said, we are taking a more modest approach to pricing. But right now, looking ahead to the second half, we are monitoring and adjusting our promotional activity and our pricing, and we expect to realize additional pricing mix, particularly in Great Britain, and it will start in Q3. Going forward, we expect the pricing and customer environment here in GB to remain competitive, yet rational over the long term.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

So does that imply -- you think you can, on the back half, modestly improve the year-over-year pricing while still seeing the price gaps that you've narrowed, by virtue of kind of taking down your price, be maintained? So basically, you're both going to take price up in concert? Or is there something that I'm -- is that the read?

Hubert Patricot

No, I think we said what we would do this year, which was modest pricing, not entirely covering our cost. We are [indiscernible] on the situation and again, building on the long term on the value creation model. We are pretty encouraged by the recent trend in July.

William W. Douglas

Steve, this is Bill. Just to clarify, we have already started seeding initiatives into the marketplace during the third quarter to realize that. And given the weather and everything else, we think that we'll be able to maintain the general price premium as it is today, and we'll stay flexible as we move through the year. But to your specific question, some of those initiatives are already being seeded into the market.

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Okay, that's helpful. And I guess just on the other topic that's been kind of persistent over the last year plus is, in France, we've heard we were close to seeing a resolution to that, those kind of follow-on issues related to the excise tax. We've heard we were close for some time, so are we -- how much progress has actually been made there, are we still close? Are we through it? How much longer do you see that and the retailer relationship there remaining kind of something that you need to repair and being an issue you have to overcome, versus kind of getting to more of a steady-state kind of environment?

Hubert Patricot

I think, Steve, the customer relationships are okay. This is not so much the point. But the market remains quite difficult. We and our customers continue to face challenges in this market, and this is evidenced by the fact that June here today is the NARTD category in France, as it were [ph], is negative in both volume and value growth in France. And of course, France was also impacted by the bad weather. But we are outpacing the category, both in volume and value. And category growth is key to our success in this market. And to this point, though the environment remains dynamic, and I would say still evolving, we are encouraged that the category is returning to growth as we speak in July and is expected to grow further in the second half of 2013. And we continue to see a good potential for growth in France. So I think it's stabilizing. But again, we had a difficult first half also in France, but back to growth for the moment.

Operator

Our next question is from Bonnie Herzog of Wells Fargo.

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division

I guess my first question, John, is you mentioned your energy portfolio was up 3%, with Monster growth up a strong 15%. So can you talk about the drivers behind the weakness in some of the other energy brands in your portfolio that are offsetting the strength of Monster, and then maybe what steps you are taking to turn these brands around?

John Franklin Brock

Sure. Let me ask Hubert to tackle that one, Bonnie.

Hubert Patricot

Yes. Overall, Bonnie, the energy segment continues to be one of the fastest-growing environments and segments. And with June, the year-to-date current [ph] data shows that growth was slower than previous year, but we were outperforming the category. The segment was up 3% in volume, 5% in value. We were up 10% in volume and 6% in value. So these are -- this is current data. Regarding our portfolio, yes, we have a combination of brands. And clearly, our Monster is the most dynamic brand. You would remember that we started also Powerade Energy quite recently. This has impacted a bit of the trend. But for the future, we are quite optimistic that the combination of Burn, Relentless and Monster is a good offer to the market in Europe, and we are gaining share with this portfolio.

William W. Douglas

Bonnie, it's Bill here. Just an add to that from a technical perspective, we actually had launched a couple of years ago a new energy entrant, Powerade Energy, and that has since been withdrawn from the market. And we're kind of lapping the last quarter of that sales volume in Q2 of last year. So that's the single biggest factor affecting the energy category results for us. Having said that, Monster is still the best-performing brand that we have in our portfolio from an energy perspective.

Bonnie Herzog - Wells Fargo Securities, LLC, Research Division

And then in terms of your operating expenses, declined 8% in the quarter, and you mentioned due to some timing benefits, so should we expect these declines to reverse in the back half? Or are some of these cost reductions sustainable? How should we think about that?

William W. Douglas

Great question. We've got some timing issues last year versus the Olympics, et cetera. The opportunity to continue driving OpEx savings at the rate that we had for the first half of the year is not sustainable for a couple of reasons. One of them is we've got year-to-date volume down. We are expecting volume growth in the back half of the year, so that in itself is going to affect the equation. But given where we are today, flattish is probably a reasonable assumption for OpEx growth for the back half of the year. If it's not quite that good, that's probably going to be a good thing because it will be -- mean our volume is even better. But right now, I would say flattish for the back half on OpEx.

Operator

Our next question is from Bill Schmitz of Deutsche Bank.

William Schmitz - Deutsche Bank AG, Research Division

Can you just talk about how the dynamic works with your incidence-based pricing, because it seems like your pricings have moved quite a bit? So is that going to impact the Cost of Goods Sold line and kind of how you buy the concentrate coke?

John Franklin Brock

Bill, could you address that?

William W. Douglas

I guess the simple answer is, yes. As we work through our plans for 2014 and we talk with the Coca-Cola Company about marketplace plans on the one hand and concentrate price on the other, the ultimate concentrate price for 2014 will be influenced by our net realized pricing in 2013. So if we get a little less price realization in '13, that would have a slight benefit to our COGS from a concentrate perspective in '14. I think that's your question...

William Schmitz - Deutsche Bank AG, Research Division

No, that's exactly my question. That's perfect. And then on the Great Britain mix, the negative mix, what primarily drove that? And why does that sort of stop in the back half of the year?

William W. Douglas

Hubert?

Hubert Patricot

I think it's a combination of 2 factors. The market was pretty declining. So redemption rates on the large pack promotion was higher than the historical levels. And at the same time, the weather was really poor. The Icy-pack [ph], the high-value pricing pack like the 500ml, were not performing up to our expectations. Again, with a pretty drastic shift in the weather pattern, we are much more encouraged by what we see in July. And also, based on the consumer excitement behind our program, Share-a-Coke, that John mentioned, we have decided to extend this program into the fall by adding 100 additional names, both in GB and the continent. So this was the factor. And again, we are keen to correct that.

William Schmitz - Deutsche Bank AG, Research Division

Okay. So is it fair to say that immediate consumption is a lot more dependent on the weather than the feature consumption products?

Hubert Patricot

Yes, it's fair to say for 2 reasons: by the fact itself, but also the channels. The away-from-home channels were more impacted by the bad weather than the grocery channel. You are talking about the café. If it's cold up on their terrace, this has immediately a big impact on their sales.

Operator

Our next question is from Caroline Levy of CLSA.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

Just want to ask a couple of more questions on the SD&A line being down 8%. Separate from the call out [ph] versus Olympics a year ago, were there any other major drivers of that decline?

John Franklin Brock

Bill, do you want to...

William W. Douglas

I think that's the single biggest factor, Caroline. As you look at prior year hurdles, clearly, given what we were experiencing from a volume perspective at the beginning of the year and then as we moved into the second quarter, we were scrutinizing aggressively all of our SD&A expenses, and I think the performance that we showed in the second quarter is related to that. And then I guess lastly, I would say we do have our renew initiatives, the programs that we've talked about earlier. And that is starting to show some benefit as we move into the second quarter. Again, we've said that the full scope of that is $100 million annualized when completed in 2015, but we're just starting to see the benefit of that really kind of coming through in the second quarter.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

And looking at the portfolio of products, can you give us a little color? I know it's a weird quarter because of the weather. But just -- within regular and diets, we're seeing an acceleration and decline in diets in the U.S. It's quite marked. Can you talk a little bit about what you're seeing there, as well as your non-COGS?

John Franklin Brock

Go ahead, Hubert.

Hubert Patricot

Yes. We don't see this, I think. The trend was a bit similar year-to-date between the 2, the diet and the sugar drinks. If anything, slightly better for the diet in Q2. So we don't see this phenomena overall in Europe.

John Franklin Brock

Yes. And Caroline, just to add to that, obviously, we are well aware of the issues, some of the issues in the marketplace, which we think are ill-founded around non-nutritive sweeteners, most notably Aspartame. But we are working very aggressively and I think very effectively with the industry and with the Coca-Cola Company to make sure that consumers and customers understand the facts. And while Aspartame in France particularly has gotten a lot of underserved negative publicity, I think the fact is we've been able to have overall results of our diet soft drinks that are not materially different than the rest of our portfolio. And Coca-Cola Zero continues to be an absolute home run. It's doing a -- it continues to do exceptionally well. So we remain committed to non-nutritive sweeteners. We know they're safe, and we're going to make sure the consumers and regulatory agencies understand that.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

And your non-COGS?

John Franklin Brock

What was the question on non-COGS? Just to [indiscernible].

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

Just wondering what -- how performance was on non-COGS versus COGS?

Hubert Patricot

It was variable by brand and by segment. Clearly, with the bad weather, the water portfolio was slightly more impacted, but it's only 3%. Then on your juice and juice drink, it was about in the same trend as the rest of the business.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

I have one final one, just getting back to the pricing, and it sounds like the competitive environment was awful -- But do you -- I just -- I'm looking for confirmation that as sales trends pick up, volumes with normal weather, you really are seeing or expect to see that pull back? Or is there some sort of strategic initiative on the part of competition to raise share?

William W. Douglas

No. I think we said earlier, Caroline, that we've already initiated pricing actions in the marketplace that are already bleeding into the marketplace during the third quarter, and we are confident that our price realization is going to improve in the back half of the year versus the first half, and definitely versus what you saw in the second quarter.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

But does that have anything to do with the change in the competitive environment? Or just your own confidence?

William W. Douglas

It's principally based on our confidence. I mean, we'll obviously flex that to a degree based on the competitive environment, but we are very confident in executing our pricing strategy for the back half of the year.

Operator

Our next question comes from Mark Swartzberg of Stifel, Nicolaus.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Two questions here on, I guess, gross margin ultimately. I may have missed it, but, Bill, could you tell us how you're thinking about inputs for the year? And then more broadly, we're something like a year into saying we're going to go off-course here in terms of managing for a stable or improving level of dollar or pound, euro-based profits per case. Is it still your view that on a longer-term basis, you manage for that number staying constant or going up? And I ask in the context that thinking inputs are going to start getting more favorable, and you're also saying you think the competitive environment might get a little more favorable going forward.

William W. Douglas

Thanks, Mark. Going to COGS first, if you go back to the April call, I had given a full year COGS-per-case inflation of a range of 3% to 4%, and that included the impact of our packaging conversion in Norway. Our current view is approximately 3%. So I think, to your point, the situation does look better today than it did in April. We're basically 7 months of history behind us. We have our hedge programs in place at or above the level that we would typically have at this time of year. Most of our exposure would be oil/PET-related. And we feel pretty good about where we'll finish the year. And obviously, we'll give a further update in October on our Q3 call. But that has improved. With respect to your margin question, and I -- I'll use a different level of shorthand. I think you were kind of referring to $0.01 case volume. And the answer is yes. We would expect to maintain/increase the $0.01 case volume overtime, both with the pricing realization, as well as the COGS and the interplay between the 2.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

And is it possible that, that -- and that's helpful, thank you. But is it possible that you actually find yourself in that situation even as you wrap up this calendar year? Rate of inflation decelerating and rate of price/mix accelerating? Could you actually find that being true for the end of the year?

William W. Douglas

I think at this juncture, that's probably a little aggressive from an assumption perspective. I think if trends were to continue, you might -- could extrapolate yourself to that point in '14. But it's way too early to predict that yet.

Operator

Our next question comes from Judy Hong of Goldman Sachs.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

So just a -- the improvement that you're seeing in July, definitely encouraging here. Just curious if you're seeing the similar rate of improvement across all your territories. So GB versus France, whether there's any notable differences in terms of the performance? And then, just in terms of the full year outlook, clearly, the second half, it does seem like we'll see positive volume growth. You also have a pretty easy comp in the fourth quarter from a volume perspective, and you're off to a good start in July. So do you think it's realistic to actually end the year with positive volumes for the full year?

John Franklin Brock

Let me comment on the second question and then I'll ask Hubert to comment on the first. And the answer is yes. We're guardedly optimistic that if things continue to go well for us, and we think they will -- and we're not assuming a remarkable weather, but just under normal circumstances, coupled with our kind of market activation and execution programs, we're guardedly optimistic that we would show volume growth, modest volume growth, for the full year. That's our hope and our expectation. And on the territory, Hubert?

Hubert Patricot

On the territory, the good news is that all territories are showing growth. But clearly the impact, and it's based on the level of temperature we have been seeing compared to the average. It's been quite impressive in countries like GB and the west of France, or France in general. A bit less in the Benelux.

John Franklin Brock

But good results everywhere. But obviously, as Hubert said, impacted a little bit by exceptional weather in certain markets.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. And then maybe just broadly speaking, just maybe if we take a step back and speak more from a macro perspective, so clearly, it's been very noisy year-to-date from weather perspective. But if you look at the underlying consumer dynamics and behavior, any signs that you're seeing in your markets, whether you think that trends are bottoming out here? Any green shoots to kind of speak of? Or any worsening of consumer dynamics?

William W. Douglas

Judy, it's Bill. I think not really. I think the only one market that we have all consistently commented on that things start to feel a little bit better, is just kind of Greater London. But I wouldn't even extrapolate that to the whole of Great Britain. It's still really too early to get optimistic about macros turning around yet.

Operator

Our next question comes from Bryan Spillane of Bank of America Merrill Lynch.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Two questions. One, just a follow-up on, I think, Bill, in your response to Bonnie's question about operating expenses in the back half of the year. I just want to make sure I had the semantics right. Are we saying that -- your expectation is that SD&A for the back half of the year would be flat versus last year?

William W. Douglas

That's correct. That was the intention of my comment.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Okay. All right. Great. And then just -- the second question, Bill, just on the balance sheet. I think in the press release, you talk about -- there's a comment in the press release about being within the targeted net-debt-to-EBITDA ratio of 2.5 to 3x by the end of the year. And so when you've done as -- an amazing job sort of continuing to deliver shareholder value despite all of the noisy results over the last year or 2, as you kind of look forward, there is a school of thought that maybe CCE could take on more leverage and buy back even more stock or return more cash to shareholders. So how do you think about sort of your balance sheet as it will stand at the end of the year? How much more flexibility you have to use it to offset if results are still tough? Just kind of what your thought process is around that topic would be helpful.

William W. Douglas

Sure. Well, we gave the comment in the release and in the remarks. Getting really granular, the net-debt-to-EBITDA, if you did the calculation, we're probably right on the edge of the 2.5x threshold at the end of the second quarter. Clearly, our free cash flow is going to be back-half weighted as we go into the remainder of the year, and that will fund the remaining share repurchase program that we have outstanding, which would leave us circa at the low end of the range at the end of the year as well. I have heard others make the comment that you have made. We continue to feel comfortable that 2.5 to 3x is the right medium-term range for us to operate within given the current dynamics of our business, as well as the current debt environment. But would a prudent organization periodically review that? Yes, but we don't see any imminent changes. I guess the other comment that we've made in the past, and I would reiterate, we've used a lot of balance sheet capacity over the last 18 months to execute our share repurchase program. We are always open and optimistic that at some point in time, we'll find some M&A opportunities. And in fact, that could take us over the 3x to execute an M&A opportunity. We are saying one about that. The free cash flow generation capability of our business plus the acquired free cash flow of whatever business that might be, we would feel we could get back within that 2.5 to 3x range within a reasonable period of time. So that's kind of the way that we're looking at it today. But your point has been heard and voiced by others, but that's the way we're managing it presently.

Operator

Our next question is from John Faucher of JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

Just wanted to follow-up a little bit on the comments in terms of the immediate consumption and the weather impact there. Can you walk us through sort of Q2 to Q3, which territories you think weather can have sort of the biggest impact? And I guess what I'm really trying to figure out is, in France, where you've obviously got a big immediate [ph] consumption business in Paris, but your large-format business has really been driving a lot of the growth there. So again, just a bit of color as the weather changes by geography, where you think the biggest benefit could be.

John Franklin Brock

Hubert?

Hubert Patricot

The weather benefits will apply to all the channels. What we see generally is, for the good and for the bad, the impact is bigger away from home, to your point. And to this extent, we expect more now from the Icy [ph] packs, especially what we see in July, and hopefully if the weather remains the way it is in the totality of the quarter. I think France is seeing or benefiting from the same level of high temperature than GB. So I think it will be a kind of good thing for both countries. And I would not make any difference on GB -- between France and GB so much. I think both will benefit in the grocery and the Icy-pack. We are just launching a new Icy-pack, the 250ml can with a lower entry price points. So we are continuing to invest and develop our presence on Icy. And clearly, we expect a bigger benefit, and it will be the same, I guess, in GB and France, both on the Icy. And the good news for France is that we have a strong activation plan, both in grocery and in away-from-home. I was mentioning Share-a-Coke. It started a bit later in France, but we're going to have the Share-a-Coke plan continuing into the fall and up to October in France. So we should see also benefit on Icy-pack, being the glass bottle in a cafe, or the 500ml in the takeaway business in France.

John A. Faucher - JP Morgan Chase & Co, Research Division

Okay, great. And then -- and I apologize if you guys mentioned this, and maybe I missed it, but what percentage of the sequential price mix improvement do you think is coming from just simply the underlying improvement in the Icy trends?

William W. Douglas

John, it would be hard to quantify that to be honest, given the dynamics in the marketplace right now. But I think meaningful but less than half, I think the best way. And if we see anything different than that over the next couple of days, we'll let you know. But that's the way I would quantify it at the moment.

Operator

Our last question is from Ian Shackleton of Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

A couple of quick questions. I'm just wondering whether it's possible in any way to quantify what a good summer means at the profit level. I think one of your competitors have cited it could be as much as 5%. So I just want to know whether you're able to comment on. And

[Audio Gap]

guidance that you've given today -- I mean, that's obviously assuming what has been a very good July. Does it seem like a continuation of what we've seen in July into August? Or is that potentially something that's still outside the guidance?

John Franklin Brock

Let me ask Bill to tackle those.

William W. Douglas

Ian, I've seen a couple of your notes on the extrapolation of weather. Clearly, summer is an important summer-selling season and the volumes are high. It is helpful, clearly, what we've seen in July, and you've lived through it. So you probably know it as well as anybody on the call from an analyst perspective. But I think to quantify it, particularly at this juncture, it's a little premature and a little difficult. Having said that, your second question, I think we have not assumed that it's going to continue to be 30 degrees for August in our forecast. It does kind of assume that August and September would be normal weather, not like we had last year, but let's call it 25 degrees. And depending on how much you believe long-range forecast, it's possible that August could be better than that, and it could provide some upside. But we've not baked in the continuation of the past 4 weeks into August.

John Franklin Brock

Okay. Thank you, Ian, for the question, and thanks to all of you for joining us today. We really appreciate your time and your attention and your interest, and hope you have a terrific day. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.

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